SYNDICATE 1 - BSEM - FLYBABOO - How High Can Fly [PDF]

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MM5012 - Business Strategy and Enterprise Modelling



Case Study



FLYBABOO : HOW HIGH CAN FLY? Lecturer : Dr. Atik Aprianingsih,ST,MM,DBA. SYNDICATE 1 Tommy Kurniawan D Wildan Grenadi Priatna Multhadi Qisman Cindy Claudia Tamarin



(29119404) (29119413) (29119492) (29119510)



Content Company Background



Value Chain & Strategic Innovation



Porter’ Five Forces



Perceived Value



Internal Analysis



Competitive Advantages



Problem? 1. Please provide Five Forces Analysis of the European airlines industry? 2. What are the key elements of the FlyBaboo value systems (FlyBaboo Value Chain)? 3. What are the key elements of FlyBaboo strategic innovation? 4. Which customer segments is FlyBaboo serving ? What percieved value are FlyBaboo aiming for? 5. How could the upstart airline build sustainable competitive advantage and what strategy should it pursue to ensure long-term growth and profitability?



About Company ●



Flybaboo is an airline company start-up founded by Julian Cook. Flybaboo began its debut by serving regional flight and aimed to take advantage of the growth potential of low-volume routes with high yield. It’s business was initially framed in highly opportunistic terms, Cook as its CEO having emphasized speed and opportunity rather than strategic planning.



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In the four months since the inaugural flight from Geneva to Lugano, Flybaboo had generated revenues of over SFr 1.4 million $. Moreover the airline was already serving the Geneva-Venice route and could look forward to breaking even in the foreseeable future through healthy sales growth.



Business Problem ●



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On August 23, 2003, FOCA released new regulations that banned landings at Agno with aircraft that did not have certification for descents at more than six degrees. This new regulation eliminate the two Flybaboo competitor because both Hello and Darwin Airlines used a plane that did not meet the criteria. By contrast, Flybaboo had chosen to fly a Dash 8-300, an aircraft certified for steep descents with an approach path of more than 6 degrees. Flybaboo requires an Air Operator Certificate (AOC) to start operating. To obtain AOC in a short period of time, Flybaboo use “wet lease” from Lufthansa partner Cirrus Airlines. However, Cook had to make critical decision to shore up its position in the turbulent Swiss regional airline industry How Internal & External Factors influence growth & Business Decision FLYBABOO.



History of Company Founded Newline Airways Ltd.,



Founded Baboo S.A



Swiss was halting operation



Julian Cook Founded a UK-based start-up airline that aim at the transatlantic business market



In October, Cook bounced back and co-founded Baboo SA. His attention back to airline industries



After reduction in its network, swiss international airlines was halting operation in October 26



2001 2000



2003 2002



Crisis In September 11, Crisis on airline industry and services



2003 2003



Granted the route concession FlyBaboo gained support from government and granted the route from DETEC on September 19.



First Flight Begin operations on October 27, and On November 2, Fly baboo made its virgin flight from Cointin to Agno.



Company Strategy and Business Models Start-Up Strategy ● ●



The company was operating with the Cirrus Airlines wet lease The operation would serve as a market and management test for the young Flybaboo team



Operating strategy ●



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Flybaboo business model relied on point-topoint, short-haul flights Flybaboo keep operating cost to a minimum by starting with one aircraft and not providing catering on board



Pricing startegy Marketing sales and Distribution strategy Marketing sales and Distribution Strategy ● Flybaboo offering low fares to be a limited number of passengers who booked early ● Flybaboo target both business and leisure customers ● Tickets are distributed through company website and call center



Communication Strategy ● ●



Pointing PR Agency Using billboard and Local newspaper



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Low-cost airlines strategy ,selling seats-on first-come first serve basis



Growth Strategy ● ●



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Short-Term Offering daily flight to increase frequency on The Geneva-Venice route Medium-Term Adding interesting short haul destinations, such as Marseilles, Valencia, Berlin, etc. Long-Term Expanding to medium-haul destinations using second aircraft type & open a new operating base



External Analysis : FIVE forces Analysis of Company Threats of New Entrants



Bargaining Power of Buyer



Newcomers airlines might interested in serving the lowvolume route



Internet for Information



High Capital Investment



Customer Price are sensitive



Flight Regulations



Customer are knowledgeable



High entry barrier - There is little chance for newcomers to start with several planes in the current difficult environment.



Other airlines might serve with other more interesting Pricing strategies, making the buyers power stronger.



No switching cost to competitor & substitute



Threats of Substitutes



Bargaining Power of Suppliers



Intensity of rivalry among competitors



Alternative modes of transportation such as road and rail (although The substitutes does not provide better performance Ground travel required 4 hours by cars and 5 to 6 hours by train (Geneva-Lugano)



Limited Number of aircraft manufactured



For other routes, numbers of players were looking to expand their operation in Switzerland, including network carries and LCC such as easyJet, that known for its reliability and high quality service. There also Helvetic Airways, offering more attractive pricing model.



High costs of switching



Only two one direct competitor for its routes (Hello & Darwin are two potential direct competitors on Geneva-Lugano route)



Teleconference



Price of fuel is dependent to global oil price Lufthansa provided the necessary AOC and was responsible for all Flybaboo operations. Since it is difficult to obtaining Air Operator Certificate (AOC) for young airline



Overall Industry Rankings Forces



Percentage (%)



Favorable



Moderate



Threats of New Entrants



15



Bargaining Power of Buyer



30



Threats of Substitutes



20



✔



Bargaining Power of Suppliers



25



✔



Intensity of rivalry among competitors



10



✔



Unfavorable



✔ ✔



Porter’s Five Forces for European Airlines Industry According to porter’s five forces analysis, threats to FlyBaboo are classified as moderate in the aviation industry



INTERNAL ANALYSIS RESOURCES TANGIBLE



DESCRIPTION



Financial



Have many investor to invest



Physical



Airplane Dash 8-300



Organizational Resources



System for Booking electronic tickets exclusively via the flybaboo website and call center



INTANGIBLE



DESCRIPTION



Human asset



Cook (CEO) has a much experience in airline industry



Reputation



Low Cost Carrier



Internal Analysis (Capability)



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Offering low fares.It could produce the possibility for Flybaboo to enhance demand for 70,000 passenger by the second year of operations as the only airline offering Geneva-Lugano route and Low fares as well. Easy to reach and cost effective distribution channel : By distributing electronic tickets exclusively via the Flybaboo website or call center .Flybaboo got 85% reservations in three months operations .However this strategy closely followed the Ryanair/easy-jet model. Minimum Operating cost : It‘s valuable because with low operating cost we can offer the company‘s pricing strategy.



FLYBABOO VALUE CHAIN Primary Activities



Description



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Point-to-point, short haul flights Single type of aircraft No catering on board



Marketing & Sales



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First come, first serve Low price for early booking Target tourist and business travelers



Services



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Exclusively sell tickets via website or call centre



Support Activities



Description



Finance



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Operations



Have many support from reputable investor



COMPARING STRATEGIC OF FLYBABOO Basic airline Value Customer



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Everyone Full Service Worldwide Network High Price



FlyBaboo ● ● ● ●



Business and leisure travelers Point-to-point Low fares First come first serve



Value Chain Operations



Multiple planes for short and long destination Worldwide Network



Point-to-point Short haul destination



Marketing



Segmented customers Varied meal services Frequent flyer program



Treat all customers the same First come first serve pricing Public relation and advertising



Services



Travel agent, Bundling, direct sales



Company website and call center



Strategic Innovation Certification Getting AOC as soon as possible



Collaboration Build cooperation with Other airlines



Expansion Add new destinations & More services and expand To medium haul destination using a second aircraft type



Brand Awareness Increase public awareness of Flybaboo



Operations Reduce operating cost in order to lower load factor to break even



Pricing Create more competitive price in LCCs segments



STRATEGY Short-Term Strategies



Medium Long-Term Strategy



Flybaboo need to increase its brand awareness to compete with future direct competitor (Hello and Darwin Airlines). Both direct competitor are supported by powerful politician and local business, so Flybaboo also need considering to cooperate with outside the airline industry.



To be able to stay ahead in present and future competition in European airline industry, Flybaboo can coexisted with network carrier as in regulated market, to increase its brand awareness through marketing and to expansion through network agreement.



How could the upstart airline build sustainable competitive advantage and what strategy should it pursue to ensure long-term growth and profitability? For start up airline, they can start the business with looking an favorable route and focus with target segment. Based on this case, LCCs is the most feasible segment for startup airline that want to plays in EU skies, and they should learn about EU open-skies accords, thus they can have advantage in providing services for their operation strategy like what kind of aircraft they want to use, and also marketing strategy, that weigh on pricing and target segment. For long term strategy, to support a healthy growth and good profitability, start-up airline can adopt Helvetic pricing strategy that used a standard price policy, because it’s more attractive from a marketing viewpoint and provided complete transparency to customers. Also, they can use ‘wet lease’ strategy with some well-known airlines, either it’s inside or outside of their country, so they can focusing on building environment and traffic for their airline, also they can adopt cost reduction strategy like FlyBaboo did (look exhibit 6) so they can reduce their cost up-till 59%. While on the other hand, they can seeks for another route for their growth, so start-up airlines will not stuck on the old routes.



FLYBABOO PERCEIVED VALUE ●



Customer segment that FlyBaboo serving : ○ Business passengers Especially for Geneva-Lugano routes (about 70%-80% are business passengers)



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Leisure passengers Especially for Venice routes



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Based on that, FlyBaboo wants to hedge market volatility, so, in the long run, they can have a brand that inextricably identified with quality and service.



SUSTAINABLE COMPETITIVE ADVANTAGES Establish brand in Low Cost Carrier and Maintain the Quality



01



Extend flight route to profit destination



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03 Maintain financial stability with reduce cost



04 Build brand equity with customer loyalty



THANK YOU. Any Question?



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